Adam Smith's Lost Legacy

GavinK9 AT gmail DOT com

Tuesday, December 31, 2013

Joseph Stiglitz on Thin Ice?

A reader send me this piece: “In No One We Trust”
by Joseph Stiglitz in the New York Times(21 Dec) HERE

"The undervaluing of trust has its roots in
our most popular economic traditions. Adam Smith argued forcefully that we
would do better to trust in the pursuit of self-interest than in the good
intentions of those who pursue the general interest. If everyone looked out for
just himself, we would reach an equilibrium that was not just comfortable but
also productive, in which the economy was fully efficient. To the morally
uninspired, it’s an appealing idea: selfishness as the ultimate form of
selflessness. (Elsewhere, in particular in his “Theory of Moral Sentiments,”
Smith took a much more balanced view, though most of his latter-day adherents
have not followed suit.)"

"...If any of them thought about the social implications of their
activities, whether it was predatory lending, abusive credit card practices, or
market manipulation, they might have taken comfort that, in accordance with
Adam Smith’s dictum, their swelling bank accounts implied that they must be
boosting social welfare."

And finally:

“I suspect there is only one way to really get trust back. We need to
pass strong regulations, embodying norms of good behavior, and appoint bold
regulators to enforce them. We did just that after the roaring ’20s crashed;
our efforts since 2007 have been sputtering and incomplete. Firms also need to
do better than skirt the edges of regulations. We need higher norms for what
constitutes acceptable behavior, like those embodied in the United
Nations’ Guiding Principles on Business and Human Rights. But we
also need regulations to enforce these norms — a new version of trust but
verify. No rules will be strong enough to prevent every abuse, yet good, strong
regulations can stop the worst of it.”

Comment

I find Joseph
Stiglitz an untrustworthy authority on Adam Smith’s Works and ideas.

Now if his remedy
for lack of trust in society were to be applied to his “lack of trust” when
attributing ideas to Adam Smith, we should “pass strong regulations, embodying norms of good behavior, and appoint
bold regulators to enforce them”. We “also need regulations to enforce these norms — a new version of trust
but verify. No rules will be strong enough to prevent every abuse, yet good,
strong regulations can stop the worst of it.”

Yes, you can imagine
the impossibility, this side of dictatorship, of first passing the necessary
legislation through parliament, and second, devising a safe system of
regulation that actually worked. And Stiglitz wants to apply such a
system to the supervision of every act that assures anybody trusting anybody
else is worthy of their trust right across a complex society’s economy! Gives us a break, Joseph! And this suggestion appears in the New York
Times from a distinguished Nobel Prize winner?

Surely something is
wrong with Joseph’s thinking here?

Although he
correctly writes: “Adam Smith argued
forcefully that we would do better to trust in the pursuit of self-interest
than in the good intentions of those who pursue the general interest”,
Smith also observed that there were occasions when individuals acted in
furtherance of their (hidden) motives, which he described in a “more striking and interesting manner”
(Lectures on Rhetoric) by using a popular metaphor of them being “led by an
invisible hand”, which had “unintended
consequences”.

Now this did not
mean that Smith equated “self interest” with “selfishness” nor that “If everyone looked out for just himself, we
would reach an equilibrium that was not just comfortable but also productive,
in which the economy was fully efficient.” Such a conclusion
is absurd and was invented by modern economists (Paul Samueson, etc.).

Why? Well each
individual is dependent on the self-interest of others and therefore cannot look
out “just for himself”, because
he must take account of and mediate his “self-interest” with respect those
others. What is true for one individual is true for others. No
individual lives on an island of egoism in a sea of indifference to the egos of
others: to receive what he wants from the “butcher, brewer, and baker” he must
address – serve, contribute to - by curbing his own “self love” to persuade
others to serve him in return. Smith called this exchange “bargaining”.

As for “Adam Smith’s dictum, their swelling bank
accounts implied that they must be boosting social welfare” I do not
recognize the reference to this as a “dictum” of Adam Smith’s.

Stiglitz in these examples does Smith and himself a disservice and feeds the “greed is good” school
of scriptwriter’s one-liners.

As for his
remedy to lack of “trust”, I consider it worse than the problem is supposedly
addresses. Trust cannot be imposed or monitored by parliaments across the
globe, nor can relationships between billions – even millions, or even
thousands – regulated by the boldest of “regulators”, necessarily deputised
across an economy, even across a family. In certain dictatorships people are closely monitored against harbouring disloyal thoughts against the regime. while sharing them is death sentence. Surely Joseph is not suggesting that?

Monday, December 30, 2013

Scottish Independence, no 1

I was interested to read the article by Brian Quinn in Scotland on Sunday (Another Voice, 15
December) in which he questions the proposal outlined in Scotland’s Future that an independent
Scotland would use the UK pound.

In my book, Scots Who Enlightened The World,
which explores the Scottish Enlightenment through the lives of its key figures,
I focused on some of the issues which need to be addressed to enable informed
voting in next year’s referendum on independence, attempting to approach these
from an Enlightened perspective. Foremost among these are membership of the
European Union and the choice of currency.

Adam Smith, were he
alive today, would, I suggested, be troubled by the inherent dangers of
becoming a part of a currency zone, be it the pound sterling or the euro, with
different economic characteristics. This was starkly demonstrated in recent
years by the runaway boom in Irish property prices fanned by the low interest
rates imposed on the Eurozone by Germany’s domestic policies when the Irish
economy needed to dampen excessive exuberance by a sharp rise in interest
rates. With his belief in the operation of markets, he would, I postulated,
have favoured the flexibility given by a Scottish pound, albeit if initially
informally linked to the pound sterling, as this would give a Scottish
Government the freedom to adopt the policies best suited to Scotland’s needs, sharing
the views expressed by Brian Quinn.”

Andrew
Ferguson, www.scotswho.com, via email

Comment

This
is becoming one of the many “hot” topics in the 2014 Referendum Debate in
Scotland. While happy to join in that debate here in Scotland I am not sure
that readers of Lost Legacy are as interested in the issues in the debate as we
are in Scotland.

However,
I think it worth pointing out that drawing on an imaginary Adam Smith to give a
view on the many issues involved is likely to prove unhelpful. This view does
not detract at all from Andrew Ferguson’s well thought-out analysis of the
currency issue.

What
Adam Smith might say today is entirely hypothetical, and subject to many
caveats, most of them unknown to anyone who lived over two centuries ago and,
not least, missed the history of events during that interval all of which, or course,
was unknown to Smith.He was a
pragmatist not a visionary.

Moreover,
whatever the politics of the 1707 vote in the then Scottish Parliament on its
highly restricted franchise that led to the Union known as the United Kingdom,
today’s case for Scottish independence does not depend on them (nor does the sad history of the Jacobites and their dynastic quarrel within the UK monarchy).

The
UK is now a busted flush: Empire (which Smith warned against) has gone; it will never come back.World domination is now a lingering
memory that the ruling political elites, with their proclivities for “police
style” interventions, will have to accept eventually. Scotland
does not need to remain wedded to the last days of the UK.

Into this mix, the question of the
currency is an important element.If the £ benefits Scotland and the rest of the UK then it will happen, but
nothing can be negotiated this side of a “Yes” vote.

Meanwhile,
we can put forward that which is best for Scotland.If a currency union (with its side effects) is considered best, then so be it ; if it cannot be agreed with the former UK recalcitrant
elite, then Scotland will live with one of the alternative options, none of them
constituting the end of civilization as we know it.

Saturday, December 28, 2013

Sydney Newspaper Prints Good Sense on Darwinian Evolution and Self-Interest

Ross Gittins, Economics
Editor, posts (28 December) on the Sydney Morning Herald – a newspaper I
once worked for as an assistant proof-reader long ago in my teens – HERE or read more HERE

“Darwinian model
of economics flawed for firms”

“What
can the theory of evolution tell us about how the economy works? A lot. But
probably not what you think it does.

Famous economists
such as Joseph Schumpeter (author of the notion of ''creative destruction'')
and Milton Friedman, and the contemporary economic historian Niall Ferguson,
have viewed economies as Darwinian arenas: competition among firms reflects the
ruthless logic of natural selection. Firms struggle with each other, with
successful firms surviving and unsuccessful ones dying.

Thus evolution seems
to support three pillars of the conventional, neoclassical model of the
economy. First, that ''economic actors'' are self-interested, second, that
self-interest works to the good of the public (propelling Adam Smith's
''invisible hand'') and, third, that together these lead the market to deliver
the community ideal outcomes (''optimisation'').

But there's a basic fault
in this contention, as Dominic Johnson, of Oxford University, Michael Price, of
Britain's Brunel University, and Mark van Vugt, of Amsterdam's VU University,
point out in their paper, Darwin's
Invisible Hand.

In conventional
economics, ''economic actors'' can be either individuals or firms, although the
theory tends to treat firms as though they were individuals. In reality,
however, firms are groups of individuals - in the case of big national and
multinational companies, thousands of them in one firm.

So if Darwinian
selection applies to competitive markets, this implies that selection pressure
acts on groups, not individuals. And group selection, as opposed to
conventional Darwinian selection at the individual level, leads to the
emergence of traits that act against
self-interest.

With group
selection, ''we should expect the suppression of self-interest among
individuals, not its flourishing'', the authors say.

''Firms with less
self-interested workers will compete more effectively and spread at the expense
of firms with more self-interested workers, which will compete less effectively
and decline. In other words, the model predicts nasty firms but nice people.

Comment

I am not sure that the
authors of the paper Ross Gittins confronts (Dominic Johnson, of Oxford
University, Michael Price, of Britain's Brunel University, and Mark van Vugt,
of Amsterdam's VU University) really understand Darwinian evolution or its
application to the evolution of society, or to what its “ruthless logic”
amounts to.Evolution is neither
“benign” nor “ruthless” – it is moral free, blind and purposeless.It happens, usually over long time
periods.It is about constant change.Many sub-human species were
consequences of the speciation from the common ancestor of chimpanzees and the
hominine line 6-8 million years ago in East Africa, from which Homo sapiens eventually emerged
some 200,000 years ago.

All the pre-human
species in the line became extinct.In biological evolution extinction is a regular and unpredictable
natural event. Nobody knows what fate awaits the human species, be it by
“nature” or by the ultimate ‘unintended consequence’ of “human actions”.

Once more on the
richness and boundaries of “self interest”: economists cling to the idea that
self-interest is egotistically competitive.It isn’t, at least in Adam Smith’s interpretation. No
individual can reach any level of self-interest without the co-operation of
many others, not all of them knowing or needing to know the ultimate beneficiaries
of their co-operation.So, as a very
young teenager (before discovering a much easier, quieter and cleaner, and
incidentally better paid job at £12 a week, on the Sydney Morning Herald) I
worked for £5.10s a weeks as an operator of a capstan-lathe, turning out dozens
of brass-fittings, drilled, scored and with threads to fit to some other
machined parts for something to do with I don’t know what. I never found out
what they were used for or who used them.But without those unknown people I would not have had
a job that satisfied my then self-interests of regular money.The price of that job was my
willingness to co-operate with anonymous others.

So it is in all
market societies.We cannot
serve our self-interests without mediating them with the self-interests of
others, as shown brilliantly in Smith’s “butcher, brewer and baker” example in
Wealth Of Nations (WN I.ii.2: 26-7). The myth of a self-interest ego is, well,
fantasy. True, my self-interest prompted me to move to the SMH, apart from the
pay and the cleanliness of the albeit untidy, air-conditioned proofreaders’
room. There were no early morning journeys to work (12 noon beats 6.50 am and
Sydney mornings at the beach beat sweaty mornings in a hot factory, in my
teenager’s view; also I had time to read a lot too, including much of the paper’s
contents, from which the idea formed of starting higher education in my early 20s).

Follow the link and
read the full post.Ross Gittins
talks a lot of sense about Darwinian evolution and I am glad to see that the
Sydney Morning Herald appears to be in safe-hands, at least for economics and
evolution.

He only needs to forget modern theories of "propelling Adam Smith's ''invisible hand'' by reading Lost Legacyposts for a month or two - but, hey, let's be grateful for major steps towards agreement.

Friday, December 27, 2013

Adam Smith On Civil Government

“Note: I was discussing with a
colleague how frustrated I was when socialists took Adam Smith quotes out of
context. He replied that the right had equally used Smith to support its
dogmas. To be clear, Smith was not a dogmatist, but a pragmatist. I wish to
clarify the context in which he said all these things.”

“Civil government, in so far as it is
instituted for the security of property, is in reality instituted for the
defense of the rich against the poor, or of those who have some property
against those who have none at all. – Adam
Smith, Wealth of Nations, Book V, Chapter I, Part II On the Expense of Justice.”

“Smith
was talking about the origins of civil government here and how no effective
institutions for the regulation of property were put in place without
significant corruption. Further in the chapter, Smith elaborates on the
necessity of a separation of powers to ensure fair judgment of the Rule of Law
to promote egalitarian treatment. A fair justice system will ensure that both
the rich and the poor have property rights.”

Comment

I discussed this quotation from Smith on Lost Legacy 29 July way back in
2006:

“Taking a quotation out of context can always cause misunderstandings. It
does so in this case. Smith was not outlining the appropriate policies for
civil governments for all time and in no sense did he suggest that the
appropriate role of government in modern societies was to suppress the poor.
Quite the reverse! His entire approach to modern government was for it to cease
intervening on behalf of special interests to enrich themselves at the expense
of consumers, the majority of whom were among the poor. He saw commercial
society as a road to opulence that would spread its benefits to the family of
common labourers.

His lectures on jurisprudence, delivered at the University of Glasgow
between 1751-1764, show his historical approach to the evolution of modern
societies through four stages, each comprising a different mode of production.
He began with what his contemporaries called ‘Rude’ society, the closest
analogy of which were commonly described as represented by the North American
‘Indians’, as reported by travellers in the 17th-18th centuries, and in Africa
and the Pacific.

In contrast to the common labourer in Scotland, by modern standards a
class of people living in poverty compared to the lives of the gentry,
landlords and princes of Britain, they compared well with the ‘chiefs’ and
‘kings’ at the head of the ‘savage’ nations of America and Africa. Indeed,
Smith pointed out that the difference in living standards between the rich and
poor in Britain was not as great as the difference in living standards between
the common poor in Britain and the ‘richest’ chief in America, who ruled the
lives of thousands of his people.

It is important to realise that Smith did not ascribe these differences
in relative living standards to any kind of racial cause; the differences arose
solely because of the relatively advanced state of the division of labour
between the two modes of production. The ‘Americans’ (and Africans) were
hunters; the Scottish poor were farmers and day-labourers, living in
shepherding, agricultural and commercial societies that had developed from when
all Europeans had lived in the first age of man – hunting and gathering. It was
John Locke (1690) who said that ‘in the beginning all the world was America’.
And so it was. Every human society had started in the Hunting stage as
‘savages’, just as our distant ancestors all came from Africa.

With extremely low population densities, hominids migrated out of Africa
from about a million years ago (and became extinct), followed by humans about
200,000 years ago. There was no need for ‘governments’ as we understand them.
People were ‘free’ of coercion, except within the families and bands, but
‘enjoyed’ extremely low living standards, first as gatherers (in common with
our cousins, the primates), then as gatherer-scavengers (stone tools, primitive
co-operators) and then as gatherer-hunters, the remnants of which occupied
North and South America (but not Central America), sub-Saharan Africa, South
Asia, Pacific Islands, and Australia.

Meanwhile, and separately, human societies in India, China, north and
central Asia, and Europe went from savagery (hunting), through shepherding,
then agriculture and lastly, commerce, some societies ‘stopping’ at particular
stages (shepherding in central Asia and Arabia, North Africa), others reaching
the commercial stages, and then reverting under barbarian invasions (Persia,
Greece, Egypt, Rome, western Europe) to agriculture with the destruction of
commerce. Meanwhile, China and India's civilisations stagnated under
institutional inertia.

Crucially, Smith highlighted the increasing role of laws as each society
developed through the four stages. With hunting and gathering, laws were few,
and were settled within families; with shepherding, law were enforced by those
who possessed flocks and herds (poachers were killed); and with agriculture and
settlements, laws were devised and enforced by the first governments, mainly in
defence of property. People who grew crops protected them against theft by
those who had none. No stable society can last for long if property in
agriculture is insecure. That was the main role of civil government as it
settled disputes and adjudicated between disputants. Shepherds defended their
flocks and herds by rewarding individuals without them with subsistence;
farmers defended their fields by rewarding landless labourers in the same
manner.

Commerce grew slowly, from the continuing division of labour – surplus
food exchanged for manufactured products in bargaining – with contracts
enforced by civil government. The relapse from Roman ‘civilisation’ (a fairly
barbaric world too) into warlords and feudalism, lasted a thousand years until
commerce revived”

in the 15th-16th centuries. Smith’s Lectures in Jurisprudence (1763-4)
trace this entire period from Classical Greece-Rome to 18th-century Britain,
and also trace the growth of Liberty within ‘modern’ society as absolutist
Feudal monarchy gave way to the rule of law, Habeas Corpus, trial by Juries,
independence of the judiciary, emasculation of the powers of the monarch,
parliamentary ‘elections’ and freedom of contracting.”

Smith was talking about the origins of civil government here and how no
effective institutions for the regulation of property were put in place without
significant corruption. Further in the chapter, Smith elaborates on the
necessity of a separation of powers to ensure fair judgment of the Rule of Law
to promote egalitarian treatment. A fair justice system will ensure that both
the rich and the poor have property rights.”

GK:

Today I would add further comments, particularly regarding the defence
of property rights in history, from observation of the behaviour not just of
the poor but also of the defence of property rights by the rich against the
depredations and ambitions of other rich property owners. Any history of
dynastic quarrels from the earliest times saw law cases galore brought by property
owners against would-be suitors with claims against current owners often
requiring the civil government to intervene on one side or another.

War Lords, Kings, and Emperors were not above these quarrels.They probably represent the largest
single cause and expense of armed state interventions in much of Europe from
pre-Roman times to the 18th century, and since.

Even in the earliest times, inter-tribal warfare was common and
skirmishes over territorial rights were constant.Hence that the Left often quote this passage from Smith in
righteous indignation about the affects of civil-government on the poor is not
surprising but they seem to prefer the naked quotation to Smith’s full argument
both his Lectures on Jurisprudence and Wealth Of Nations.

Early legal judgments that settled
disputes about property rights could cover which tribal member in an
egalitarian band had the “right” to the fruit of a tree – the one who picked it
or the one who snatched it from the picker? – or the “right” to an animal in a
hunt – the one who “started” the chase or the one who claimed the body during
the hunt?And so on in their
everyday lives.

Smith discusses these and many other cases in his Lectures on
Jurisprudence. Only Left anarchists and Hard Libertarians dispute the absolute
need for civil government to support justice in civil society and that means
Civil Government and the Rule of Law.

Wednesday, December 25, 2013

A Mysterious Mission

“es, the invisible hand allows good products to
succeed. Yes, the invisible
hand solves the problem of allocating resources, because it allows good
products that people want to succeed and it also allows things that people do
not want to fail. Resources are not distributed efficiently if someone else
decides what people should want, instead of what they actually want. There will
be a shortage of some things and an overproduction of others. The invisible
hand allows everyone to participate in the economy by allowing them to vote
with where they spend their dollars.”

Comment

“es” writes as if there
is some sort of entity in markets that allows some things to happen and
disallows others.

Apparently, “someone else”
cannot decide what people should want but the “invisible hand” entity can!
Remarkable.How does the “market”
choose between “someone” and the “entity”?

Surely, people see
visible prices and decide accordingly whether to buy?What does the “entity” contribute to the decision?

We know that if people
did not exist there would be no markets because there would be no prices.Now suppose there was no “invisible
hand” entity, we can be sure that where “visible” prices in markets exist,
there would be markets.The ”entity”
is redundant; there is no “invisible hand”.

“es” asks the wrong
question.It should be “does the "invisible hand" solve anything”?

Murray Rothbard's Dismissal of Adam Smith

“You didn't learn this in your typical economics class in college. You
probably didn't learn it anywhere. Economist Murray Rothbard explains economics didn't began
with Adam Smith and was better before Smith showed up on the scene. If you read
this printed lecture: you'll learn more about economics than what many people
learn in their entire stay at college.”

Comment

Murray Rothbard had a “thing” about Adam Smith, which I discussed on
Lost Legacy in 2006 after reading his articles courtesy of the “Austrian” web
site (von Mises, etc. whose “Human Action, a large volume, that I purchased was heavy going, though impressive in its scope).

I have asked several ‘Old timers’ who knew Rothbard.Their reports of his abrasive debating prowess
did not include his use of the usual academic courtesies (much like Karl Marx,
who ‘never took prisoners’ of those who disagreed with him).

Rothbard’s line that “economics didn't began [sic] with Adam Smith and was
better before Smith showed up on the scene” is classic of him.

You can find similar Rothbardian approaches in Salim Rashid’s “The Myth
of Adam Smith” (1998), Edward Edgar, and echoes too in Joseph Schumpeter’s magnificent
“History of Economic Analysis” (1954) (Allen & Unwin), edited by his wife,
Elizabeth Schumpeter. [Similar abrasive debaters should note, it does not do
your case harm to include your “opponents” respectfully in your references.]

Now Adam Smith had critical respect for his predecessors.He was severer on those governments
that listened to some of them in the camp of mercantile political economy,
policies we can now see in historical perspective that started England (later
Britain) on the road to Empire building and to the wars up to
the 1950s at great cost in capital and human life.

Rothbard had a bee in his bonnet about Smith’s muddled ideas on the
theory of value and blames him for the Marxian developments in the labour
theory of value, communism, and all that followed.

Why Smith alone is selected for that odium is not clear; he followed his
predecessors and was followed by Ricardo, Mill and etc., who led to Marx, who, incidentally,
was quite a failure as a revolutionary, let alone as an economist. Various strains of 'Marxism' long remained a minority voice
in the growing mass labour and socialist movements from the 19th and 20th
centuries that evolved into social democracy.

Moreover, much of Adam Smith’s contributions in economics and moral
philosophy were taken over by epigones, whose misinterpretations of Smith provoke
critical appraisal and the hostility from such as Rothbard and others, in their
one-line quips of dismissal.

Loony Tunes no 88

“For the two of you who have yet to
figure it out, HAYNES on FIRE fully subscribes to
the Invisible Hand Theory, as so eloquently developed by Adam Smith in his
magnum opus, The Wealth of Nations.
Therein, Smith advances the now-novel idea that producers should be free
to individually control all aspects of production (including wages) in bringing
their products to the marketplace.”

GK: “Haynes” should
cool down and give his imagination a rest.In Smith’s day employers had everything stacked against
their labourers in the matter of wages.Labourers could not meet even to discuss their wages, let alone agree to
take action, or even demonstrate in support of higher wages.Such activity breached the Combination
Acts and resulted in jail sentences, even transportation to the colonies.No such laws existed against employers
combining with other employers to resist pay rises or to agree to cut wages.
Local Magistrates from the same social grouping as local employers set many legal wage rates.Adam Smith commented on
this situation and attacked the hypocrisy in his “magnum opus” – "Haynes on fire" should know that.

Nobel Prize Winner Critiques the Existence of the Invisible Hand

“Perhaps, the single most
important idea in economics is Adam Smith's invisible hand, which states that
the pursuit of self-interest would lead to the well-being of society. If this
were true, it would mean that business leaders would have to ask only one
question: what should I do to increase my bottom line?

All other concerns would
fall into place as a result of the wisdom of the market. Elevated to a creed,
the idea has even more drastic implications: as long as I make a profit, I am
still doing God's work - even if I abuse workers' basic rights or despoil the
environment in the process.

Much of my own research
over the past half century has been devoted to understanding why it is that
Adam Smith's invisible hand so often seems invisible. My conclusion, in a
nutshell, is that it is invisible because it is not there.”

Comment

Joe Stiglitz spells out his
stance on the “invisible hand” in greater detail in the rest of the article
which you should read via the link.It is parallel to regular statements on Lost Legacy, much of
which I agree with, though not all.

The problem lies in the
first sentence: “the single most important idea in economics is Adam Smith's
invisible hand”, but that may be a quibble in this context.

Having broken free from
belief in the existence of “an invisible hand” it is a small but significant
step to take for Stiglitz, but he should drop the association of the “invisible hand” idea
with any intellectual connection to Adam Smith’s writings.

It is a wholly invented modern idea
that there is an invisible hand “guiding” an economy.Smith’s “idea” was much more simple: the invisible hand was
a metaphor for the motives of individuals in the only two cases he gives, and that says other individuals
in “many other cases” may also do. The two cases he identifies who acted from those motives led to those actions that had consequences, some of
which also had “unintended consequences” that served the overall “public good”, and, crucially, there are many other cases (in Wealth of Nations) which did not benefit the public good, as show in Smith's "violent attack" on Mercantile political economy (WN Book 4).

Wednesday, December 18, 2013

First They Shoot the Doctors, Later They Come for the Patients

Robert Vienneau on his Blog “Thoughts on
Economics” HERE posts
a disturbing piece of news about what seems to be happening across economics
faculties worldwide.The are
attempts to downgrade History of Economic Thought courses, journals and
research papers in Australia; similar trends in North America and now this in
The Netherlands.

The bias seems to be in favour of mathematic
formalism which is less and less about the real world and more and more about ‘lets
assume’ we can write the equations for a world that does not exist and call it “science”.Unfortunately, the real world in which
human societies have evolved is messy beyond the imaginations of those whose
opening lines include the word “assume”.Moreover, there is no consensus on how economies
actually work and there are many views as to which favoured aspects are
relevant.This makes the history
of ideas important, because the people who have made suggestions have a place
in evaluating any proposals that may get air-time among politicians who might
adopt said ideas and make millions of people unhappy with what happens as a result (net of their fees).

Yes, that’s difficult to contemplate.But knowing nothing about past ideas
that didn’t work or wasn’t tried is just asking to risk repeating them.

I am particularly concerned that Marcel
Boumans and Harro Maas are named as being among the victims of the purges in
the University of Amsterdam.I
know them and appreciate their work in the history of Economic Thought and the
Methodology of Economics (the latter is heavily slanted to quantitative
methodology).

Well first they shoot the doctors and later
they come for the patients.

Robert Vienneau has performed a singular good
service in posting notice of what went on at Amsterdam.It is warning to all those working in
the field of economics.I post it
below:

"For most of my time over ten years at
the University of Amsterdam my research and that of my colleagues was strongly
supported. (I taught three courses every second fall term, and took leave from
Marquette.) Unfortunately over the last two years people in leadership
positions there at the faculty of economics decided that the history and
methodology of economics (HME) was not important, and in conditions of a
financial emergency associated with chronic budget shortfalls closed down the
HME group. That included sacking my very accomplished and, in our field,
well-respected colleagues Marcel Boumans and Harro Maas, who had been associate
professors there for many years, and ending the chair position in HME, which I
held, which had been at the faculty for decades. We had six courses in the
history and methodology of economics; engaged and enthusiastic students; a
research group of up to a dozen people; a master degree in HME; PhD students;
and a required methodology course for bachelor students. I do not think there
was a better program in the world in our field. We also had great interaction
with the London School of Economics, the history of economics people at Duke
University, history of economics people in Paris, and the Erasmus Institute for
Philosophy and Economics. The HME group was internationally recognized, and
attracted students from across the world. Our financial footprint, in fact, was
quite small compared to other groups, and by a number of measures of output per
person we were more productive than many other research groups at Amsterdam.

Since I fully believe the faculty financial
emergency could have been addressed without eliminating the group, I can only
put what happened down to prejudice against our field, plus the usual on-going
territorial aggrandizing that has been a key factor in the elimination of
history of economics from most American universities. It is interesting to me
also, that with a few exceptions, members of the economics faculty at Amsterdam
made no effort on the HME group’s behalf to resist what happened or even
personally expressed regret or concern to those who lost their jobs. I find
this reprehensible.

The loss of this program was a blow to our
field. There are now few places in the world training PhD students in history
and/or methodology of economics. So in the final analysis the situation for
economics and philosophy is mixed: considerable achievement with an uncertain
future. Great weight, in my view, should be placed on restoring PhD training in
the field, something that is being done, for instance, through generous grants
from the Institute for New Economic Thinking at Duke University under Bruce Caldwell."
-- John B. Davis (2012). Identity
Problems: An interview with John B. Davis, Erasmus Journal for Philosophy and Economics, V. 5, Iss. 2
(Autumn): pp. 81-103.

Monday, December 16, 2013

New Book Appreciates Adam Smith on Multi-Layered Motivations

John Paul Rollert (14 December) reviews Jack Russell Weinstein, Adam Smith's Pluralism, Rationality, Education and the Moral
Sentiments. Yale
University Press HERE (John Paul Rollert is a Lecturer in Law at the University of Chicago Law School).

“There are worse
fates. Consider Adam Smith. His philosophy — indeed, the fact he was a
philosopher — has been obscured by the “invisible hand.” That phrase occurs
just three times in his entire corpus and only once in his most famous work, The Wealth of Nations. Nevertheless,
it has become a symbol for the “caricaturish libertarian” whose philosophy (if
we may call it that) has supplanted the “holistic picture of human agency”
Smith spent his adult life describing.

Or so says Jack Russell Weinstein in a remarkable new
book, Adam Smith’s Pluralism: Rationality,
Education, and the Moral Sentiments. The title is most telling for what
it omits. Smith is best known as the founding father of modern economics. More
than two centuries after his death, he is still celebrated for establishing a
“free-market paradigm” — as Alan Greenspan put it in a 2005 lecture in
Kirkcaldy, Scotland, Smith’s birthplace — that “remains applicable to this
day.”

….
[Rational Choice Theory (RCT) “in its most vulgar form, that calculus presumes
that people are always and everywhere driven by self-interest, an arid account
of human motivation.’…” As
opposed to the “formal modeling of rational deliberation,” the decision-making
process for Smith is “significantly more layered.” Human beings are buffeted by
a wide variety of motivations — some inspired by custom, others etched in our
DNA, all shaped by circumstance — and adjudicating between them is not a
straightforward exercise in utility maximization, whether in respect to aim or
the manner of deliberation….

… “Indeed, what truly distinguishes Adam Smith from
the adherents of RCT as well as the proponents of a Kantian-based liberalism is
the auxiliary role of reason in decision-making. The credo of the Scottish
Enlightenment was famously coined by David Hume, Smith’s dearest friend, when
he said, “Reason is, and ought only to be the slave of the passions, and can
never pretend to any other office than to serve and obey them.” … Ultimately,
Smith’s work, and The Theory of Moral
Sentiments in particular, provides us “a process of finding social unity
in the face of otherness, of creating a stable pluralism.”… Ultimately, Smith’s
work, and The Theory of Moral
Sentiments in particular, provides us “a process of finding social unity
in the face of otherness, of creating a stable pluralism.” …

Comment

There is much in John Paul Rollert review that I would agree with.He captures neatly and convincingly
Adam Smith’s views on humans’ “mutli-layered” concepts of human motivation in
rejecting uni-dimensional Rational Choice theories and the mathematics of 'Max-U' thinking that dominates many (too many) modern economists, specially where it
imagines self-interest is adequate to explain everything or even most, of human
behaviour.It is not even an
approximation.

Having castrated
“self-interest” into mere “selfishness” it ends up with butchers, brewers and
bakers screwing their customers over their dinners, ignoring the very words
Smith uses to explain how people bargain in the real world, where individuals’
self-interests leads them, via mutual persuasion, to mediate their
self-interests to realise the mutually satisfying terms of exchange. [New
readers can scroll through Lost Legacy to read my many posts of “Adam Smith on
Bargaining”.]

Jack Russell Weinstein’s
new book looks interesting and I shall note its details from Yale Press for
future reference when I complete my reading of recent purchases of some other recent books on
Smithian scholarship.

However, I have
reservations about Weinstein’s take on Smith’s approach to education and the
division of labour (also discussed on Lost Legacy, often in relation to
Chomsky’s interpretations).

Meanwhile if you know
of other published reviews let me know of them, please.